The nation’s trade deficit is under control, but concerns about Vietnam’s supply of US dollars have intensified.
Vo Thi Sanh, vice head of BIDV’s Treasury Department, said though the banking system’s greenback supply had dried up, the State Bank’s intervention had been limited. “We expected the State Bank to sell more dollars, but with the deteriorating trade balance, we should be worried that the dollar supply will be affected,” said Sanh.
In the first half of 2009, Vietnam’s trade balance saw a deficit of $2.1 billion, from a surplus at the end of the first quarter. HSBC’s economist Prakriti Sofat said Vietnam’s annual trade deficit would be around $8.5 billion, 9 per cent of gross domestic product (GDP) by end of 2009, much lower than last year’s $17.5 billion, 22 per cent of GDP.
On the State Bank’s website, head of the Foreign Exchange department Nguyen Quang Huy said that the trade deficit in 2009 was still under control and “much improved than 2008”. “The problem was the hoarding of corporate dollars, but with our implemented measures, the situation is getting better,” said Huy.
In June, the State Bank, in cooperation with the Vietnam Banking Association, successfully convinced local banks to lower the greenback deposit rates en masse, reducing the appeal of keeping the foreign currency. The current maximum interest rate for greenback deposits was 1.5 per cent, per year.
Huy said other sources of dollars were still stable. The disbursement of foreign direct investment was $4 billion in the first half of 2009 and is expected to close the year at $8 billion. Meanwhile, remittances from overseas Vietnamese reached $2.83 billion in the first half and is expected to hit $5.8-6 billion by the end of the year, slightly lower than the $7.2 billion in 2008. According to the State Bank’s recent report, in the second half of 2009, the bank would increase greenback selling volumes to banks.
HSBC’s foreign exchange strategist Daniel Hui said that the risk of re-widening the trade deficit could not be ignored and a gradual shift should be made to a market-based exchange-rate management system based on liquidity management, via interventions, from the current daily fixed and trading band-based system.
“Such improvements to the exchange rate regime would allow the foreign exchange market to better manage volatility if market risks return,” said Hui. At the moment, local banks are allowed to trade the dollar at 5 per cent on either side of the State Bank’s official daily exchange rate. In early July, the authority also tightened enforcement on methods used by commercial banks that could be construed as outside-the-band trading.
